Eldorado to buy Sino Gold for $2 billion

Eldorado Gold (ELD-T, EGO-N) has offered $2 billion in shares for China-focused Sino Gold (SGX-A) in a friendly deal that would see the company’s gold production climb to 550,000 oz. this year.

In June, Eldorado bought a 19.8% stake in Sino through an all-share agreement with Gold Fields (GFI-N, GOF-L). Now, subject to some due diligence and a shareholder vote, it will take over the whole company. The new Eldorado will have four operating mines; three in China and one in Turkey plus a project pipeline that will see production reach 850,000 oz. gold from six mines by 2011, putting in the ranks for becoming an intermediate gold producer.

Eldorado has been operating in China for five years and in that time China has become the world’s top gold producer, surpassing South Africa, which held the No. 1 position since 1905.

“We recognized that China was quickly emerging as one of the most important gold producing countries in the world,” said Eldorado president and CEO Paul Wright during a conference call in Toronto today. “We began cautiously and patiently in order to form a solid foundation for a long term business success in China.”

The combined company will have a market capitalization of about $6.4 billion and will give Sino shareholders exposure to Eldorado’s projects in Turkey, Greece and Brazil.

If Sino shareholders agree to the deal, as recommended by management, they will exchange each share for 0.55 of an Eldorado share, representing a 21.3% premium over Sino’s closing share price on Aug. 25, the day before the deal was announced.

Eldorado has a 90% interest in the Tanjianshan mine in Western China, which will produce up 95-100,000 oz. gold this year at a cash cost of US$385 per oz. Production started in 2007 and reserves should last nine years.

Over in Turkey, Eldorado’s Kisladag mine is set to produce 230-240,000 oz. at a cash cost of US$265 per oz. It went into production in 2006 and is expected remain in operation for 15 years.

Sino expects to produce 210-230,000 oz. from its two mines with cash costs averaging US$400 per oz. The company’s flagship project, the 82%-owned Jinfeng open pit mine, is the second largest gold mine in China. Located in Guizhou province in southeastern China, Jifeng reached commercial production in 2007. The mine produced 151,000 oz. gold in 2008 with production expected to increase this year.

Sino’s other operating project is the White Mountain gold mine in Jilin province, northeastern China, where production began last October. Sino expects the mine to produce about 65,000 oz. gold per year.

Two Sino directors will join the Eldorado board, including chairman Jim Askew, and Sino’s president and CEO Jake Klein will become a consultant.
Although Eldorado is based in Vancouver, it will keep one of Sino’s offices in Sydney for logistical purposes.

“There’s a lot of sense having the technical and operating management in the region come out of the same time zone,” Wright said.

Eldorado shares dropped almost 5% in Toronto today, or 58¢, on a trading volume of 6.7 million shares.